IFoA offers practical solutions to rebalance risks faced by consumers

The Institute and Faculty of Actuaries has today (Thursday 22 April) published the final report and recommendations for its Great Risk Transfer campaign. This wide-ranging campaign, launched in January 2020, was set up to investigate the ways in which risk is increasingly being transferred from institutions to individuals, especially when it comes to the planning of finances.

Actuaries work across many areas of the financial sector, with a focus on understanding and managing risk and uncertainty. In order to bring a distinctive and meaningful contribution to this debate, our recommendations focus on the actuarial aspects of this trend in the transfer of risk, particularly in relation to pensions and insurance.

John Taylor, Immediate Past President of the IFoA, said:

“Transfer of risk to individuals has been driven by governments and companies seeking to reduce their risks. While this may be a rational strategy for these institutions, it has had damaging impacts for consumers and society as a whole. In terms of harm to individuals and damage to public trust in institutions, we believe risk transfer represents an even wider systemic failure than well-known examples such as the widespread misselling of Payment Protection Insurance.

 “Our report calls for urgent action – by policymakers, employers and the financial services industry – to tackle risk transfer as a systemic failure, and recommends some practical solutions. We believe the IFoA has an important role to play here, and we commit to offering our actuarial expertise in relevant areas, and to promoting solutions and best practice.”

The report’s recommendations fall into two categories: rebalancing risk by shifting some key responsibilities back towards institutions, and helping consumers with financial decision making.

Recommendations on rebalancing risks:

• Government action to show employers that collective defined contribution (CDC) pension schemes are an attractive alternative to defined contribution (DC) schemes.
• Government to consider extending default pathways for drawing on retirement savings to all retirees, to reduce the risk of individuals running out of money during retirement.
• Government, industry and the IFoA to determine a minimum level of insurance protection needed for all.
• IFoA to promote research into factors that make a model such as Flood Re successful, and how such models might be applied to other risks to improve access to affordable insurance for all consumers.
• The Pension Regulator’s defined benefit (DB) funding Code of Practice to make avoiding scheme closures an equal priority with member security.
• HM Treasury to consider whether changes to the Solvency II framework in the UK could incentivise insurers to develop products that offer consumers investment guarantees.

Recommendations to help consumers with financial decision-making:

• Financial Conduct Authority (FCA) to set ambitious target to increase individual take-up of Pension Wise appointments before accessing pension.
• Money and Pensions Service Dashboard Steering Group to prioritise the way retirement income is estimated and presented in a consistent way.
• FCA to put in place regulation or guidance to strengthen consumer protection in risk transfer incentive exercises, eg those used for Periodical Payment Orders.
• Government to reinvigorate its public messaging around minimum pension savings levels, in particular auto enrolment.

John Taylor continued:

“We have put much effort, time and resource into understanding the bigger picture on the Great Risk Transfer and to developing evidence-based recommendations. Our call for evidence in early 2020, and the ensuing roundtables with stakeholders and members, demonstrated that this trend is deep seated and long term in nature.

“We realise that trying to reverse this trend entirely is not appropriate. However, we should remember that financial services exist to serve consumers. Our work suggests that greater choice and access to pensions and insurance products is possible and desirable. We believe there are opportunities to rebalance risk away from consumers back to institutions in a way that is likely to benefit society as a whole in the long run.”

Polly Mackenzie, Chief Executive at Demos, said:

"The transfer of risk from institutions to individuals is an increasingly important trend that can help explain a lot of the challenges people face today, including ensuring people save enough for a good retirement. As this report shows, a lot of these transfers are irreversible – but we can, however, do a lot more to enable and empower people to manage these risks better. This is why we are delighted to be part of the work the IFoA is doing to discuss the steps the financial services sector and policymakers can take to ensure risks are well managed in society today."

Panel Discussion Event On Thursday 22 April 2021

The Great Risk Transfer: How can Individuals Manage New Risks in the 21st Century?

Join the IFoA and Demos for an online panel discussion to mark the launch of the Great Risk Transfer campaign’s recommendations. The panel will discuss how risk management has changed in recent decades, and how policymakers can make sure individuals are able to manage new risks, including saving enough for a good retirement and securing care in later life.

Panellists:

Stephen Timms MP, Chair of the Parliamentary Work and Pensions Select Committee
John Taylor, Immediate Past President of the IFoA
Vicky Pryce, Economist
Charlotte Pickles, Director at Reform think tank

The Panel will be chaired by Polly Mackenzie, Chief Executive of Demos

~ENDS~

Contact
Sonia Sequeira, Media Relations Manager, IFoA
Tel: 07525 592 198
Email: sonia.sequeira@actuaries.org.uk

Notes to Editor

1. ‘The Great Risk Transfer – Campaign recommendations’ . Institute & Faculty of Actuaries. March 2021
2. ‘The Great Risk Transfer Interim campaign report’. Institute & Faculty of Actuaries. July 2020.

About the Institute and Faculty of Actuaries

The Institute and Faculty of Actuaries (IFoA) is a royal chartered, not-for-profit, professional body.

Research undertaken by the IFoA is not commercial.  As a learned society, research helps us to fulfil our royal charter requirements to further actuarial science and serve the public interest. 

Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long-term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s of London.

Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.

The IFoA is available to provide independent expert comment to the media on a range of actuarial-related issues, including COVID-19 and its long-term consequences, mortality, pensions, life and general insurance, health and care, finance and investment, climate change and sustainability, systems thinking, uncertainty and judgement, and risk management.